money: Electronic Money

Electronic Money

Electronic payment systems, already in place for use by credit-card processors, were adapted in the 1990s for use in electronic commerce (e-commerce) on the Internet. Such “digital cash” payments allow customers to pay for on-line orders using secure accounts established with specialized financial institutions; related technology is used for on-line payment of bills and direct payments using smartphones to individuals and businesses. Virtual currencies are unregulated forms of exchange that act like money but are created and controlled by computer software and are typically not backed by, and often not recognized as money by, national governments. The best-known and most widely circulated virtual currency, Bitcoin, allows its users to make online payments that are not subject to government or bank scrutiny, which has led law enforcement officials to express concerns over its potential or actual use in bypassing currency controls, in money laundering, and in financing terrorist or criminal activities. It also has experienced security breaches and theft. Its utility as a substitute for currency in ordinary transactions, however, has been greatly diminished since its creation by the extreme fluctations in its value caused by its use as a speculative investment. In 2020 the Bahamas became the first nation to introduce a nationwide digital currency issued by a central bank; its sand dollar, which is used by means of a cellphone app, is designed to allow wider access to financial services and reduce the fees associated with electronic payments.

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